Hello, the question asks me to calculate NPV of an expansion capital project. I dont understand for sure what rate should I use:
Capital project will be financed with a 9% longterm banking loan. Risk premium required by shareholders equity is 7%. The income Tax rate is 20%.
Balance sheet:
Shareholder’s equity - 8000
Longterm debt - 0
Accounts payable - 2000
Total - 10000
The question is: what rate should I use for NPV calculation?